JGB 10-year yield hits fresh six-year high despite BOJ intervention

TOKYO: The yield on the benchmark 10-year Japanese government bond hit a fresh six-year high of 0.250% on Monday, reaching the upper limit of the Bank of Japan’s policy band even after the central bank stepped into the market to try and rein in its rise.

The BOJ offered to purchase an unlimited amount of the notes earlier in the day after the yield touched 0.245% for the first time since January 2016.

The monetary authority’s actual operation is to be executed on Tuesday.

The yen also pushed lower against the dollar, crossing 123 for the first time since December 2015, as the BOJ’s uber-dovish stance contrasts with an increasingly hawkish US Federal Reserve. JGB yields have been pulled higher by rising Treasury yields, with that on the US 10-year note reaching 2.5360% in Tokyo trading on Monday, a level not seen since May 2019.

BOJ Governor Haruhiko Kuroda on Friday reiterated the Bank’s commitment to “continue to maintain powerful monetary easing,” adding that he still sees a weak yen as “generally positive” for Japan’s economy.

The BOJ has set 0.25% as the implicit upper limit of its tolerance under its yield curve control (YCC) policy, which pegs the benchmark at around zero. It last conducted an unlimited purchase operation on Feb. 10, when the yield climbed to 0.230%.

It had stayed quiet on Friday though, even as the yield rose to as high as 0.240%. “The BOJ’s move wasn’t a surprise, as it was largely anticipated with the yield inching closer to 0.25%,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

“Kuroda’s remarks and this operation all indicate the message that the BOJ will keep solid easing for the time being, so they will continue to act accordingly.” Yields on other tenors also rose, particularly at the long end of the curve.

The 20-year JGB yield added 4 basis points to 0.775%, the 30-year yield advanced 3.5 basis points to 1.000% and the 40-year yield climbed 4.5 basis points to 1.040%.

The five-year JGB yield edged up 0.5 basis point to 0.050%.

The two-year note had not traded as of 0423 GMT, and last yielded minus 0.030%. Benchmark 10-year JGB futures fell 0.20 point to 149.28, with a trading volume of 15,626 lots.